State Sales Tax in E-Commerce: Navigating Electronic Taxability and the Economic Nexus Rule

Determining When and Where Your Services and Products Trigger Sales Tax Liability

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A


Conducted on Thursday, February 11, 2021

Recorded event now available

or call 1-800-926-7926
Course Materials

This course will provide guidance to corporate tax professionals, counsel and advisors for navigating the various and evolving standards of state taxability of digital products and services to determine what component of a company’s offering is taxable, and in which jurisdiction(s).

Description

Sales tax advisors and IT companies providing various digital services, including AI and data processing services, cloud products and services, and software, face special challenges in determining how and where their products and services will be taxed. Individual states have many approaches regarding taxes on IT services and products. Some individual states have specific statutes and rules aimed at determining what products and services each state taxes; however, these state rules may conflict with other states’ practices.

Among the challenges providers face in assessing whether they will be subject to transaction taxes in a particular state is defining what product or service they are providing in that transaction. This is particularly true where the transaction has bundled elements. If the "true object" of the item sold is included in a state’s definition of taxable products or services, then the sale likely is subject to transaction tax. In most jurisdictions, including a taxable product or service in a bundle with an otherwise nontaxable service may make the entire transaction taxable.

The U.S. Supreme Court’s decision in South Dakota v. Wayfair has given the states more power to tax digital services. That combined with the advent of employees working from home presents challenges to the practitioner in determining the states in which an IT company has tax obligations.

Listen as our experienced panel discusses the various challenges of determining the taxability of IT services and products; explain the challenges, problems and solutions regarding sourcing/nexus/bundled pricing; and review best practices for structuring contracts and transactions to segregate taxable from nontaxable services and products.

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Outline

  1. Post-Wayfair nexus rules
    1. Sales tax
    2. Income tax
    3. Gross receipts taxes
    4. COVID-19 tax relief developments
  2. General approach to analysis of digital service contracts in the face of divergent state tax laws, including six questions:
    1. What is the product or service?
    2. Is it a bundled product or service?
    3. To what state(s) is the product sourced?
    4. Does the state tax the product sourced?
    5. Do exemptions or direct pay permits apply?
    6. Does the provider have nexus with the state where the service is sourced?

Benefits

The panel will review these and other key issues:

  • What approaches are states taking to define the nature of IT products or services for purposes of determining taxability for sales and use tax?
  • How do various states address whether installing servers or software would make otherwise nontaxable IT services subject to state sales and use tax?
  • How do the various states treat pre-written software, delivered remotely, for purposes of sales and use tax?
  • How states incorporate Wayfair

Faculty

Eisenstein, Martin
Martin Eisenstein

Managing Partner
Brann & Isaacson

Mr. Eisenstein is one of the nation’s leading experts in state and local taxation of information...  |  Read More

Carey, Michael
Michael E. Carey

Partner
Brann & Isaacson

Mr. Carey is a partner at Brann & Isaacson who focuses his practice on state and local taxation of information...  |  Read More

Szal, Jamie
Jamie E. T. Szal

Attorney
Brann & Isaacson

Ms. Szal focuses her practice on assisting businesses in all aspects of state and local tax controversy, from...  |  Read More

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